Figure 36-7

-In Figure 36-7, there are three aggregate expenditure functions (C + I + G + X − IM) for an open economy.Which of the following would cause a movement from A to B?
A)An increase in interest rates
B)An appreciation of the dollar
C)A depreciation of the dollar
D)An increase in the U.S.price level

Question

Figure 36-7
​ 
-In Figure 36-7, there are three aggregate expenditure functions (C + I + G + X − IM) for an open economy.Which of the following would cause a movement from A to B?
A)An increase in interest rates 
B)An appreciation of the dollar 
C)A depreciation of the dollar 
D)An increase in the U.S.price level

Quizplus · Accepted Answer

A depreciation of the dollar would shift the aggregate expenditure function upward (to the right), causing a movement from point A to point B. This is because a depreciation of the currency makes domestic goods less expensive for foreign buyers, which increases exports, and also makes foreign goods more expensive for domestic buyers, which decreases imports. As a result, net exports increase, leading to an increase in aggregate expenditure at each level of income.

Figure 36-7 ​

Figure 36-7